# Blinded by the Refund : Why TFSAs may beat RRSPs as better retirement savings vehicle for some Canadians by Jamie Golombek

Size: px
Start display at page:

Download "Blinded by the Refund : Why TFSAs may beat RRSPs as better retirement savings vehicle for some Canadians by Jamie Golombek"

## Transcription

4 Chart 4 Dick and Jane - Withdrawals Future value of savings - age 45 to 65 Dick (RRSP) Jane (TFSA) \$173,596 \$119,521 Annual withdrawals - age 65 13,930 9,591 to 85 Tax on withdrawals (4,339) n/a Annual after-tax cashflow from retirement savings \$9,591 \$9,591 Note: Assumes beginning of year contributions, 5% growth rate, equal end of year annual withdrawals, zero balance left at end of 20 years and 31.15% marginal tax rate for Dick. Of course the big assumption equating the annual retirement cashflows is that both Dick and Jane remain in the same tax bracket when they access their funds upon retirement as they were in when the initial contributions were made to the RRSP or TFSA. Let s explore the accuracy of this assumption and its applicability to Canadians in more detail. Tax rates working vs. retirement As the example of Dick and Jane illustrated, whether one invests in an RRSP or a TFSA is nearly irrelevant if you re in the same tax bracket when you withdraw the funds as you were in when you made your contribution. Many Canadians, however, believe that they may be in a lower bracket upon retirement making the argument for contributing to RRSPs over TFSAs. Let s take a closer look at this by exploring the three possible scenarios side by side: the constant tax rate assumption, the high rate to low rate assumption that favours the RRSP over the TFSA and the low rate to high rate assumption that reaches the opposite conclusion. (Chart 5) The first column, reproduced from Chart 1 above, shows the constant tax rate assumption, which shows that with constant tax rates, you should generally be indifferent between investing in a TFSA or an RRSP. The second column shows that RRSPs will produce a better result when the tax rate upon withdrawal is expected to be lower than the tax rate upon original contribution. Conversely, the third column demonstrates that TFSAs will provide more after-tax cash if your tax rate will be higher upon ultimate withdrawal than it was when you contributed. Chart 5 Same Tax Rate High/Low Low/High TFSA RRSP TFSA RRSP TFSA RRSP Pre-tax income \$5,000 \$5,000 \$5,000 \$5,000 \$5,000 \$5,000 Tax rate - contribution 40% 40% 20% Tax (2,000) - (2,000) - (1,000) - Net contribution 3,000 5,000 3,000 5,000 4,000 5,000 Growth at 5% / 20 years 7,960 13,266 7,960 13,266 10,613 13,266 Tax rate - withdrawal 40% 20% 40% Tax - (5,306) - (2,653) - (5,306) Net cash \$7,960 \$7,960 \$7,960 \$10,613 \$10,613 \$7,960 4

### The Benefit of an RRSP, TFSA or Debt Repayment

February 2013 The RRSP, the TFSA and the Mortgage: Making the best choice Jamie Golombek It s important to save. Saving allows us to set aside some of our current earnings for enjoyment at a later time.

### It's 2016 Do You Know What Your Tax Rate Is?

It's 2016 Do You Know What Your Tax Rate Is? Jamie Golombek Managing Director, Tax & Estate Planning, CIBC Wealth Strategies Group April 2016 There s been much discussion about tax rates this year, with

### The Great Divide: Income splitting strategies can lower your family s taxes by Jamie Golombek

March 2015 The Great Divide: Income splitting strategies can lower your family s taxes by Jamie Golombek While the new Family Tax Cut credit, which provides a form of income splitting, has been getting

### THE TAX-FREE SAVINGS ACCOUNT

THE TAX-FREE SAVINGS ACCOUNT The 2008 federal budget introduced the Tax-Free Savings Account (TFSA) for individuals beginning in 2009. The TFSA allows you to set money aside without paying tax on the income

### Federal Budget 2014 by Jamie Golombek

February 11, 2014 Federal Budget 2014 by Jamie Golombek The February 11, 2014 federal budget included various tax measures that will affect individuals, registered plans, employers and trusts. Rather than

### Private Wealth Management

Private Wealth Management Small Business Report October 19, 2010 April 17, 2007 Rethinking RRSPs for Business Owners: Why Taking a Salary May Not Make Sense by Jamie Golombek Abstract Traditionally, many

### Invest. Tax-Free (It will make you smile) Tax-Free Savings Account

Invest. Tax-Free (It will make you smile) Tax-Free Savings Account A Saving & Investing Revolution The Tax-Free Savings Account (TFSA) is considered to be the most important personal savings plan introduced

### Introducing. Tax-Free Savings Accounts

Introducing Tax-Free Savings Accounts Tax-Free Savings Accounts A new way to save Tax-free savings accounts were introduced by the federal government in the 2008 budget as an incentive for Canadians to

### Tax-Free Savings Account(TFSA) trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance Company.

Tax-Free Savings Account(TFSA) Registered trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance Company. Tax-Free Savings Account Canadians need all the help

### The Compensation Conundrum: Will it be salary or dividends? by Jamie Golombek

December 2013 The Compensation Conundrum: Will it be salary or dividends? by Jamie Golombek With the year-end for most businesses fast approaching, owner-managers once again will begin to ponder the age-old

### Tax-Free Savings Account (TFSA) now available!

Tax-Free Savings Account (TFSA) now available! Customer-owners have a new way to save money with the Tax-Free Savings Account (TFSA), now available at Metro Credit Union. You can save or invest money without

### The Proposed Tax-Free Savings Account

The Proposed Tax-Free Savings Account The Conservatives 2006 election promises included a proposal to eliminate capital gains taxes where the proceeds were reinvested within six months. Taxpayers and financial

### Bye-bye Bonus! Why small business owners may prefer dividends over a bonus

Bye-bye Bonus! Why small business owners may prefer dividends over a bonus Jamie Golombek Managing Director, Tax & Estate Planning, CI Wealth Advisory Services September 2015 Traditionally, many Canadian

The Canadian Retirement Income Guide 2014 Edition Maximizing your retirement income while minimizing your taxes Introduction When you retire, not only does your daily routine change, but your pay cheque

### Your guide to the Tax-Free Savings Account

INVESTMENTS Tax-Free Savings Account Your guide to the Tax-Free Savings Account An important part of any financial plan is savings. Short-term goals such as a vacation or long-term goals like retirement

### How Can You Reduce Your Taxes?

RON GRAHAM AND ASSOCIATES LTD. 10585 111 Street NW, Edmonton, Alberta, T5M 0L7 Telephone (780) 429-6775 Facsimile (780) 424-0004 Email rgraham@rgafinancial.com How Can You Reduce Your Taxes? Tax Brackets.

### TAX-FREE SAVINGS ACCOUNTS (TFSAs) Investor Guide

TAX-FREE SAVINGS ACCOUNTS (TFSAs) Investor Guide Introduction Since its introduction in 1957, the Registered Retirement Savings Plan (RRSP) has been one of the best tax shelters available. Aside from RRSPs,

### Mining Your Tax Return for Extra Money This Spring

Many Happy Returns! Mining Your Tax Return for Extra Money This Spring Jamie Golombek Managing Director, Tax & Estate Planning, CIBC Wealth Strategies Group April 2016 A surprising number of Canadians

### THE TAX-FREE SAVINGS ACCOUNT

THE TAX-FREE SAVINGS ACCOUNT BY READING THIS DOCUMENT, YOU WILL: Know the different features of the TFSA Master the differences between a contribution to an RRSP or a TFSA Identify target clienteles. Last

### Taxation of Retirement Income

Taxation of Retirement Income TAXATION OF RETIREMENT INCOME As our population ages, the need to fund a comfortable retirement becomes a priority for more and more Canadians. Many Canadians planning for

### Doing It Right the First Time! Avoiding the Most Common Tax Return Errors by Jamie Golombek

March 19, 2014 Doing It Right the First Time! Avoiding the Most Common Tax Return Errors by Jamie Golombek Preparing your tax return can be a daunting task. While nearly 70% 1 of individuals engage tax

### TAX-FREE SAVINGS ACCOUNT (TFSA)

TAX-FREE SAVINGS ACCOUNT () A practical addition to your client s savings portfolio Advisor s document Investment THE TAX-FREE SAVINGS ACCOUNT () The Tax-Free Savings Account () is probably the single

### TAX, RETIREMENT & ESTATE PLANNING SERVICES. Clawback calculator user guide

TAX, RETIREMENT & ESTATE PLANNING SERVICES Clawback calculator user guide Table of contents Introduction... 3 Fully taxable and investment income Fully taxable income... 4 Investment income... 5 Deductions

### Maximizing GIS. A background paper on retirement financial planning for Canadians with very low incomes

Maximizing GIS A background paper on retirement financial planning for Canadians with very low incomes a Contents Contents Purpose of this paper 3 Summary of GIS eligibility criteria and advice for low-income

### Understanding (and choosing between)

Tangerine guides to personal finance Understanding (and choosing between) RSPs & TFSAs A guide for Canadians While RSPs have been around for a long time, TFSAs are relatively new and not always well understood

### Registered Retirement Income Funds

Registered Retirement Income Funds Registered Retirement Income Funds Most Canadians are familiar with registered retirement savings plans (RSPs). Many spend decades accumulating wealth in these tax deferred

### TAX-FREE SAVINGS ACCOUNT (TFSA)

TAX-FREE SAVINGS ACCOUNT (TFSA) DO YOURSELF A FAVOUR! Like paying less tax? Don t we all! And just think of what you could do with the extra money: Travel the world Take time off work Retire early Spoil

BEING FINANCIALLY PREPARED FOR RETIREMENT The Scary Facts! \$1.00 item in 1972, costs \$3.78 today At the average rate of inflation, the price you pay for an item today will be double in 20 years almost

### Sample retirement plan prepared with. The Canadian Retirement Planner s Software. For information visit http://www.gobeil.ca/

RETIREMENT PLAN PROVINCE OF ONTARIO AS AT JANUARY 1, 2012 PREPARED BY DAVID GOBEIL, CA, CFP NOVEMBER 14, 2011 VERSION DRAFT Sample retirement plan prepared with The Canadian Retirement Planner s Software

### This strategy gives a person the ability to take advantage of the tax-sheltering ability of a life insurance policy.

Insuring the Future In this Newsletter: Supplementing Retirement Income Who should be looking at this strategy? The Registered Savings Problem John Jordan, CFP CERTIFIED FINANCIAL PLANNER Phone: (519)

### T a x - F r e e S a v i n g s A c c o u n t s :

T a x - F r e e S a v i n g s A c c o u n t s : A N e w F l e x i b l e, T a x - a d v a n t a g e d I n v e s t m e n t O p t i o n. Tax-Free Savings Accounts (TFSAs) are a new investment vehicle introduced

### TAX, RETIREMENT & ESTATE PLANNING SERVICES. Registered Retirement Savings Plan (RRSP) THE FACTS

TAX, RETIREMENT & ESTATE PLANNING SERVICES Registered Retirement Savings Plan (RRSP) THE FACTS Table of contents What is an RRSP?... 3 Why should I contribute to an RRSP?... 4 When can I contribute?...

### Solut!ons for financial planning

Understanding your options this RRSP season 16 Solut!ons for financial planning Consider mutual funds and segregated fund contracts You ve likely heard it before: you should regularly contribute to a Registered

### Everything you need to know about Tax-Free Savings Accounts (TFSAs)

Tax, Retirement & Estate Planning Services TAX-FREE SAVINGS ACCOUNT THE FACTS Everything you need to know about Tax-Free Savings Accounts (TFSAs) Until 2009, many Canadians held their savings in Registered

### Salary vs. dividends for business owners

Salary vs. dividends for business owners One of the most recurring questions business owners ask is - should they take salary or dividend income from their business? Some accountants suggest a bonus-down

### Making Retirement Assets Last a Lifetime PART 1

Making Retirement Assets Last a Lifetime PART 1 The importance of a solid exit strategy During the working years, accumulating assets for retirement is one of the primary goals of the investing population.

### The Tax-Free Savings Account (TFSA) Frequently Asked Questions

TAX MANAGEMENT The Tax-Free Savings Account (TFSA) Frequently Asked Questions The Tax-Free Savings Account (TFSA) is a savings vehicle that started in 2009 and allows Canadian residents to earn investment

### Strategies For Dealing With An Early Retirement Package

If you or a member of your family is facing a permanent lay-off, voluntary early retirement or forced early retirement, there are many important decisions to be made decisions that can have a significant

### Your group tax-free savings account

Your group tax-free savings account What s a TFSA? It s a flexible investment savings plan that allows you to earn tax-free investment income. A tax-free savings account (TFSA) is a new type of savings

### Registered Retirement Income Funds

Registered Retirement Income Funds The Income Tax Act states that a Registered Retirement Savings Plan (RRSP) matures by December 31 of the year in which the planholder (annuitant) reaches age 69. At the

### Sample retirement plan prepared with. The Canadian Retirement Planner s Software. For information visit http://www.gobeil.ca/

RETIREMENT PLAN KAREN AND BILL SWIRE PROVINCE OF ONTARIO AS AT JANUARY 1, 2012 PREPARED BY DAVID GOBEIL, CA, CFP NOVEMBER 4, 2011 VERSION DRAFT Sample retirement plan prepared with The Canadian Retirement

### Your U.S. vacation property could be quite taxing by Jamie Golombek

June 2015 Your U.S. vacation property could be quite taxing by Jamie Golombek It seems everywhere we look, Canadians are snapping up U.S. vacation properties. Though your vacation property may be located

### > The Role of Insurance in Wealth Planning

> The Role of Insurance in Wealth Planning Executive retirement solutions A S S A N T E E S T A T E A N D I N S U R A N C E S E R V I C E S I N C. Executive retirement solutions Everyone wants enough retirement

### T h e R e t i r e m e n t S a v i n g s D e b a t e...

T h e R e t i r e m e n t S a v i n g s D e b a t e............. I n s i d e o r o u t s i d e t h e R R S P s t r u c t u r e? RRSPs have traditionally been viewed as the most efficient, self-funding

### TFSA Tax Free Savings Account

TFSA Tax Free Savings Account Banking Insurance Planning Table of Contents WHAT is A TFsA? 1 Who can open a TFSA? Who Could Benefit from a TFSA? Non-resident holders Qualified investment in a TFSA contributions

### Income Taxes module. After covering the topics in the module booklets or web pages and this workshop, learners will be able to:

Income Taxes module Trainer s Introduction Most people are aware that they must file an income tax return in Canada, if only to claim back any excess taxes that were withheld from their income. Filing

### Your Guide to Retirement Income Planning

Your Guide to Retirement Income Planning Your Guide to Retirement Income Planning 3 Your retirement income plan How to create secure income in retirement Your retirement will be as unique as you are. Travel,

### 1.1 How can I plan for my retirement income?... 1. 1.2 Your retirement income needs... 1. 1.3 Converting your RSP... 1

R e t i r e m e n t I n c o m e F u n d s I n f o r m a t i o n B o o k l e t. This booklet is intended to address questions commonly asked about Retirement Income Funds (RIFs). The booklet is not intended

### MEMBER TAX-FREE SAVINGS ACCOUNT A Fresh Approach To Your Savings

MEMBER TAX-FREE SAVINGS ACCOUNT A Fresh Approach To Your Savings Tax-Free Savings Account: A Fresh Approach to Your Savings TFSA Dollar Limit (Contribution Limit) Contributions to your TFSA may only be

### Preparing for Retirement. A Guide for Employees. Human Resources

Preparing for Retirement A Guide for Employees 010 Human Resources Contents Introduction... 3 Canada Pension Plan Retirement Benefits... 4 Old Age Security... 6 Employment Insurance Benefits at Retirement...

### Early Retirement Strategies

If you or a member of your family is facing a permanent lay-off, voluntary early retirement or forced early retirement, there are many important decisions to be made decisions that can have a significant

### NexGen Tax Cases The Corporate Tax Deferral and Income Program

2014 NexGen Tax Cases The Corporate Tax Deferral and Income Program Business owners and managers in Canada who have incorporated have two major income tax advantages available to them over those who have

### The Corporate Investment Shelter. Corporate investments

September 2012 The Corporate Investment Shelter Many successful business owners retire with more assets than they need to live well. With that realization, their focus can shift from providing retirement

### Tax-Free Savings Account

Investing Tax-Free Savings Account Helping you reach your goals sooner 2 Investing For short-term and long-term goals, consider a Tax-Free Savings Account Everyone has different reasons for saving and

### Taxation of Students

MITCHELL & PEARCE PROFESSIONAL CORPORATION Chartered Professional Accountants. Taxation of Students If you re a student, you want to stretch your budget as far as you can. When it comes to personal income

### Personal Financial Plan

Personal Financial Plan Pete and Carrie Mitchell 918 Richmond Street Toronto, Ontario M5N 1V5 Disclaimer This document has been prepared to assist in the analysis of your current financial position, thereby

### > The Role of Insurance in Wealth Planning

> The Role of Insurance in Wealth Planning Tax-sheltered investing using life insurance A S S A N T E E S T A T E A N D I N S U R A N C E S E R V I C E S I N C. Tax-sheltered investing using life insurance

### PROPOSAL FOR A PROVINCIAL TAX CREDIT TO SUPPORT INVESTMENT IN ONTARIO'S SOCIAL ECONOMY - REGISTRATION OF INVESTMENTS

PROPOSAL FOR A PROVINCIAL TAX CREDIT TO SUPPORT INVESTMENT IN ONTARIO'S SOCIAL ECONOMY - REGISTRATION OF INVESTMENTS A BRIEF TO THE PARTNERSHIP PROJECT FROM THE ONTARIO SOCIAL ECONOMY ROUNDTABLE (OSER)

### Total Financial Solutions. Practical Perspectives on Tax Planning

TM Trademark used under authorization and control of The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF. All insurance products are sold through ScotiaMcLeod Financial

### Put more money in your pocket with your group tax-free savings account

Put more money in your pocket with your group tax-free savings account A tax-free savings account (TFSA) is a flexible investment savings plan that allows you to earn investment income tax-free and pay

November 2014 CONTENTS What is an RRSP? Contributing to your RRSP Investing and managing your RRSP Making withdrawals from your RRSP Summary ANSWERING YOUR RRSP QUESTIONS RRSPs are an important component

### INSURED RETIREMENT PROGRAM

INSURED RETIREMENT PROGRAM www.financialhorizons.com INSURED RETIREMENT PROGRAM One of the challenges faced by individuals who earn a higher income is finding tax efficient ways to save for retirement.

financial planning & advice Tips for successful investing. Start early and invest regularly Do your homework take the time to become an informed investor Develop an investment strategy you are comfortable

### Module 5 - Saving HANDOUT 5-7

HANDOUT 5-7 Savings Tools (detailed) 5 Contents High interest savings account This is a type of deposit account. The bank pays you interest. The rate changes with the prime rate set by the bank. This is

### 2014 Year-End Tax Planning Tips for Seniors, Employees, Families and Students

2014 Year-End Tax Planning Tips for Seniors, Employees, Families and Students While the end of 2014 is approaching, there is still an opportunity for individuals to review their financial situation with

### Protection Solutions. This is all about. Insured Annuities. with Standard Life

Protection Solutions This is all about Insured Annuities with Standard Life Hello. What is an Insured Annuity? The insured annuity uses two products: a prescribed annuity and life insurance. The prescribed

Canada life segregated Funds Lifetime income benefit Guarantee your income for life Grow income don t allow it to decrease Financial strength and stability Founded in 1847, Canada Life TM was Canada s

### Advisor Guide. The BMO. Insurance Insured Retirement Plan

Advisor Guide The BMO Insurance Insured Retirement Plan Table of Contents Introduction to The BMO Insurance Insured Retirement Plan 2 The Opportunity 3 The Solution 4 The BMO Insurance Insured Retirement

### Smart strategies for maximising retirement income 2012/13

Smart strategies for maximising retirement income 2012/13 Why you need to create a life long income Australia has one of the highest life expectancies in the world and the average retirement length has

### Whole Life Insurance. John Perre Regional Life Sales Manager

Introduction to Whole Life Insurance John Perre Regional Life Sales Manager Agenda Introduction to Equitable Life Stock company VS a mutual company Benefits of dealing with a Mutual Company Introduction

### Easy Guide to Retirement Income Options

Easy Guide to Retirement Income Options Contents PAGE 1: Your retirement income choices... 2 1. Convert your RSP into an annuity... 2 a. Life Annuity... 2 b. Term Certain Annuity to Age 90... 2 2. Convert

### Making the right choice

GROUP RETIREMENT SAVINGS SOLUTIONS Simply let our experts guide you Desjardins & Co. Making the right choice Reference Guide for Employers Group Retirement Savings Products At Desjardins Group, we excel

### Year End Tax Update Fall 2015

Year End Tax Update Fall 2015 Kevin Tran Director, Tax Advisory Services October 2015 August 2015 Agenda 1 Proposed Tax Changes Liberal Platform 2 Year-End Tax Planning - Simple Ideas 3 Distribution Planning

### WITHDRAWING FROM YOUR IRA: A GUIDE TO THE BASIC DISTRIBUTION RULES

WITHDRAWING FROM YOUR IRA: A GUIDE TO THE BASIC DISTRIBUTION RULES Since IRAs are vehicles to encourage saving for retirement, penaltyfree regular distributions cannot start until after the account owner

### MEMBER TAX-FREE SAVINGS ACCOUNT A Fresh Approach To Your Savings

MEMBER TAX-FREE SAVINGS ACCOUNT A Fresh Approach To Your Savings Tax-Free Savings Account: A Fresh Approach to Your Savings TFSA Dollar Limit (Contribution Limit) Contributions to your TFSA may only be

LEAVING YOUR EMPLOYER SHOULD YOU COMMUTE YOUR PENSION PLAN? Mackenzie Tax & Estate Planning In past years when an individual changed employers, it was pretty much an accepted practice to leave their defined

### Retirement Enhancer. A tax-efficient way to enhance your retirement income using universal life insurance

Retirement Enhancer A tax-efficient way to enhance your retirement income using universal life insurance Will you have enough retirement income to fulfil your dreams? Today, many of us are living longer

### Investing. retirement income

Investing to optimize retirement income Research and writing Julien Michaud, B.Sc. Act., ASA (Autorité des marchés financiers) Developers and collaborators Catherine Hamel, M. Sc. (Desjardins Financial

### Mind your taxes in retirement

Mind your taxes in retirement The BMO Institute provides insights and strategies around wealth planning and financial decisions to better prepare you for a confident financial future. Contact the BMO Institute

### pensions backgrounder #4

pensions backgrounder #4 Private Retirement Savings Part 4 in a Series The full series of pension backgrounders are contained in the National Union s Pensions Manual, Fourth Edition available from the

### (*This release is based on an article published in Tax Notes, May 2004, CCH Canadian Limited)

Estate Planning in the 21st Century - Life Insurance: Exploring the Corporate Edge - Part I* By David Louis, J.D., C.A., Tax Partner, Minden Gross and Michael Goldberg, Associate, Minden Gross (*This release

### You and Your SEVERANCE: Mackenzie Tax & Estate Planning

You and Your SEVERANCE: PUT YOUR MONEY TO WORK Mackenzie Tax & Estate Planning 1 2 Are you facing a change in your employment? Severance, early retirement, extended layoff? Transitions like these can be

### CIFPs 11 th Annual National Conference. Frank Di Pietro, CFA, CFP Director, Tax & Estate Planning. May 2013

Tax & Estate Planning for Business Owners CIFPs 11 th Annual National Conference Frank Di Pietro, CFA, CFP Director, Tax & Estate Planning May 2013 DISCLAIMER The information provided is general in nature

### Corporate asset efficiency

Life insurance solutions Corporate asset efficiency Manage. Access. Preserve. A smart solution for professionals permanent life insurance, a unique asset that can offer tax-advantaged growth. Consider

### Common-law (including same-sex) partners taxation information

Tax & Estate Common-law (including same-sex) partners taxation information Under the Income Tax Act (Canada), all common-law relationships, either opposite- or same-sex, are treated equally. For tax purposes,

### Charitable Donations of Securities

The Navigator RBC WEALTH MANAGEMENT SERVICES Charitable Donations of Securities Gifting shares instead of cash could enhance your tax benefit To encourage individuals to increase their charitable giving,

INSURANCE The Truth About Annuities are one of the least known, least understood and most underutilized financial instruments. Yet as Paul Goldstein explains, in certain circumstances annuities should